There are a number of important rules to follow when you are trading in Forex, or any other market. Every strategy will involve different objectives and methods, but there are some key points to consider one of which is:

Cut losses short

This is the sister rule to the previous one, and is usually just as difficult to implement (although it is very easy to define). In the same way that profitability comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will toss your way each year.

Setting a maximum loss point before you enter the trade so you know before-hand approximately how much you are risking on this particular position is relatively straightforward. You simply need to have an exit price that says to you 'this trade is a loser and I will exit before it gets any bigger'. Due to gaps at the open, or limit moves in futures we can never be 100% certain that we can get out with our maximum loss, but simply having the rules, and always sticking to it will save us from the nasty trades that just keep on going and going against our position until we have lost more than many winning trades can make back.

If you have a losing position that is at your maximum loss point, just get out. Do not hope that it will turn around. Why risk any more money on this losing trade, when you could simply close it out (accept the loss) and move on. This will leave you in a much better place financially and mentally, than holding the position and hoping it will go back your way. Even if it did do this, the mental energy and negative feelings from holding the losing position are not worth it. Always stick to your rules and exit a position if it hits your stop point.

For more of the Golden Rules of Trading, avail of the free copy of "Introduction to Foreign Exchange" from Go Markets here.